Vermont Administration Secretary Jeb Spaulding says the state was surprised that the federal government has determined the state hospital is not eligible for 90 percent federal funds for its replacement following Tropical Storm Irene.

But Spaulding told lawmakers on Wednesday the administration is confident that it will get significant funding to replace the hospital.

He expects the state to get 90 percent federal funding for parts of the hospital, which is slated to cost nearly $43 million.

FEMA Vermont coordinating officer Mark Landry said 90 percent reimbursement required more serious structural damage at Waterbury, and proof the site suffers chronic flooding-- and the state had not met that threshold.

Landry would not estimate what percentage of reimbursment Vermont will ultimately receive but expects a resolution could come sometime in late January or February.

"There are plenty of other good options we're exploring," Landry said Wednesday from his office in Essex where 75 staffers are still focused on Vermont's Irene recovery.

"We have a team of some of the best experts in the country that are exploiting every aspect of floodplain compliance for the maximum benefit to the State of Vermont relating to the Waterbury state office complex," Landry said.

Governor Shumlin said construction planning will not be affected by this week's letter.

The state expects to break ground on a new 25-bed facility in Berlin next month and is moving forward with plans for a seven-bed secure recovery residence in Middlesex and eight temporary beds in Morrisville.